Medical office projects spur development in Spokane

Specialized healthcare-related office uses driving new developments around Spokane

Health-care-related real estate activity has been brisk here as doctors' groups and commercial real estate developers continue to pursue medical office building projects. Experts say they anticipate more growth in that real estate niche as Spokane strengthens its reputation as a regional medical center.

Doctors are developing their own medical offices partly to provide a source of income to offset declining Medicare reimbursements and because they want an investment after retirement. They also need larger, more specialized spaces as technological advancements allow them to perform more procedures in their offices rather than in a hospital. Meanwhile, developers see medical office buildings as a gold mine in a sector that's largely immune to economic fluctuations, even though the cost of construction is higher because of the specialized nature of such offices.

"The bottom line is that since Spokane is a medical center for the entire region, we're going to see continued growth in medical office buildings, especially by subspecialties that have more and more interest in ownership," says Randall Stamper, a Spokane attorney who specializes in health-care law. "There are local contractors who act as developers that are actively pursuing that opportunity as well."

NAI Black, a longtime Spokane-based commercial real estate and management firm, says it views medical office developments as its biggest growth opportunity. In February, the company landed a con-tract with Empire Health Services to man-age and lease its medical office proper-ties, which has "given us a lot of foothold in that market;" says CEO Dave Black.

Black also is part owner in Latah Creek Plaza LLC, which plans to develop a 20,000-square-foot medical office building just north of the Latah Creek Plaza shopping center in southeast Spokane.

"The fact is that the medical community is growing and very strong and always has been;' Black says. "You always do regular office space, retail, industrial, and investment, but the medical office building cannot be ignored" as an increasingly important component of commercial real estate, he says.

The medical office projects developed or announced this year include:

*Spokane Eye Clinic PS plans to erect a $9.6 million, 44,000-square-foot building erected just north of its current facility in the medical district south of downtown.

*Rockwood Clinic signed a long-term lease for a 12,000-square-foot office building being constructed at the Quail Run Professional Campus, on the South Hill, by Dr. John Sonneland, who's developing the office center.

*Group Health Cooperative plans to move its South Hill clinic in February to a space in the new Regal Place professional building constructed by Spokane developer Terry Tombari.

*North Spokane Family Dentistry recently started work on a new medical-office building on the North Side to replace its former, smaller quarters.

*In August, Northwest Dermatology said it planned to develop a new medical office building north of Spokane because it had outgrown its current leased space.

Developers are attracted to medical office buildings partly because the health-care industry tends to be a stable part of the economy, especially in Spokane, where health care is such a dominant sector, Black says. As of the end of last year, the Spokane-area medical-office market had a vacancy rate of roughly 9 percent - compared with a vacancy rate of 17 percent in the Class A office space market, Black says.

Tenant turnover rates typically are lower in medical office buildings because doctors want to stay put once they've found a space that meets their needs, and that tendency is attractive to developers, Black says. Also, doctors are busy enough managing their practices that they often look to developers and building managers to manage and lease out their properties.

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